Sichuan Expressway (107.HK) BUY (TP: HK$5.06 (from HK$4.41)) 10.1% traffic growth Robust traffic growth, attributed to strong economic prospects in Sichuan and Chongqing, resulted in a 40.4% yoy revenue increase in FY09A, which is 1.4% more than our estimate. We think the stronger revenue organic growth and stringent cost control shall boost net profit by 55.7% yoy in FY09E (to be announced on 9th March), instead of our previous forecast of 51.0%. Going forward, Sichuan’s and Chongqing’s strong economic prospects, together with strong traffic flows at the Chengyu and Chengle expressways, shall raise revenues by 12.6% CAGR (FY10F-12F), and net profit by 11.6% CAGR over the same period. BUY maintained, with revised TP of HK$5.06. 23% consolidated daily traffic growth in FY09A boosts revenues by 40.4%. The main reason was the incorporation of a 09 full year of traffic flow and revenue from newly acquired Chengle Expressway, which was funded by the RMB 1.7bn A-share offering on July 2009. The traffic increase was also due to strong organic growth, on the back of the higher-than-national GDP growth of Sichuan (14.5%) and Chongqing municipality (14.9%), versus the nation’s 8.7% growth in 2009. Earnings estimate for FY09e revised up 3.1%. The newly acquired Chengle’s contributed about 63% of the total revenue growth in FY09A, which has exceeded our estimate by Rmb26.4m (1.4%). We estimate the lower interest rate in FY09 as compared with FY08A has reduced the company’s finance cost by about Rmb6m. However, higher cost owing to the increased traffic should increase operating expenses by about Rmb7m. As such, we lift our previous earnings estimate for FY09e by Rmb25.7m, or 3.1%. Our new profit estimate would post a profit growth of 55.7% for FY09e, 4.7% higher than our previous estimated profit growth of 51.0%. BUY maintained, with revised TP of HK$5.06. We revise our DCF-based target price from HK$4.41 to HK$5.06. Our revised target price implies FY10F PER of 13.6x and FY10F EV/EBITDA of 9.7x. BUY reiterated.
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